Bank Consolidation and Loan Pricing

Lili Xie ()
Additional contact information
Lili Xie: Department of Economics, Ball State University

No 200706, Working Papers from Ball State University, Department of Economics

Abstract: This paper examines the e®ects of bank mergers on loan pricing. Using a sample of U.S. commercial and industrial loans, I ¯nd that banks reduce loan interest rates after they acquire target banks with small market shares, suggesting that the e±ciency gains e®ect dominates the market power e®ect in such mergers. This merger e®ect is largest in the ¯rst year and almost disappears by the third year after the merger. Ex-ante conditions such as the concentration of the banking market and the market overlap of merging banks signi¯cantly a®ect merger e®ects in ways consistent with theory predictions. Merger e®ects are also found to vary across ¯rms: mergers lead to larger rate reductions for informationally opaque ¯rms than for informationally transparent ¯rms. This provides counter evidence for the concern that bank mergers will particularly hurt ¯rms lacking high-quality quantitative information. Although merging banks reduce their loan interest rates, rival banks, i.e., banks located in the same markets as the merging banks, leave their loan interest rates unchanged after mergers occur. This can be attributed to the fact that rival banks do not get e±ciency gains as merging banks do and thus do not ¯nd it pro¯table to follow the pricing change of merging banks.

Keywords: Bank Merger; Economies of Scale; Economies of Scope; and Market Power. (search for similar items in EconPapers)
JEL-codes: G21 L40 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2007-11, Revised 2007-11
New Economics Papers: this item is included in nep-ban, nep-com and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://econfac.bsu.edu/research/workingpapers/bsuecwp200706xie.pdf First version, 2007 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bsu:wpaper:200706

Access Statistics for this paper

More papers in Working Papers from Ball State University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Tung Liu ().